Social Security Now Takes More Than it Gives

Social Security has reached another critical threshold: For the first time, a typical husband and wife retiring today can expect to collect less in benefits than it paid in payroll tax over the course of their life.

In many ways, Social Security is an undervalued asset. Spouses benefit even if they never worked for pay. Kids benefit if a parent dies. The disabled get paid for life. Above all, Social Security provides lifetime income in retirement—an increasingly rare component of today’s patchwork retirement system.

But it is now official: Social Security is a lousy investment for the average worker. People retiring today will be among the first generation of workers to pay more in Social Security taxes than they receive in benefits over the course of their lives, according to a new analysis by the Associated Press.

Looking at numbers from an Urban Institute study, the AP found that a married couple retiring in 2011 after both spouses earned average income during their lives paid total Social Security taxes of $598,000. They can expect to collect $556,000 in benefits, if the man lives to 82 and the woman lives to 85. This is another landmark turning point sure to enliven the debate over how to fix Social Security, which without changes will be insolvent by 2033.

Another look at Urban Institute numbers suggests that the average working family still enjoys a positive return when factoring in Medicare benefits. And plenty of workers will continue to enjoy a positive return on their lifetime Social Security tax payments—women more than men because they live longer, among other factors. And because benefits are progressive, low-income workers will continue to receive a positive return. For high-income workers the return went negative two decades ago.

The possibility of a negative return was never contemplated when Social Security started making regular payments in 1940. Then, payroll taxes were low and benefits were robust, and people didn’t live so long in retirement. With 42 workers per retiree, there was plenty of cash flowing into the program. So it was that the first Social Security recipient, Ida May Fuller, was able to collect $22,888.92 in lifetime benefits after paying a mere $24.75 into the system during her working years.

By 1960, there were still 4.9 workers paying into the system for every beneficiary collecting—and the typical family could expect to collect seven times what they paid into the system. But as the number of retirees began to grow and life spans expanded the strain became apparent. Still, as recently as 1985 workers across the board could expect a positive return on the tax.

But today there are just 2.8 workers per Social Security recipient and that number will fall to 1.9 by 2035, according to the Congressional Budget Office. People no longer routinely die at 65 but live well into their 80s. To compensate, payroll taxes that were just 2% in the 1940s have risen to 12.4% today (half paid by your employer), which is another reason that you stand to collect less than you paid.

What can you do about the negative return? Live longer, for one thing. Social Security payments continue until you die. Lose weight. Stop smoking. Exercise. You’ll get more than just a better return on your tax dollars; you’ll save on medical costs, too. And don’t take Social Security benefits before age 70, if you are in good health and can afford to wait. Every year you delay, your monthly benefit rises by 8%, giving you a good shot at an even bigger lifetime payout.

Dan Kadlec is a journalist who has written about personal finance for TIME and other outlets for 25 years. He is the author of three books, a leading voice in the global financial literacy movement, and strategic adviser to the National Financial Educators Council.

Kadlec's latest is A New Purpose: Redefining Money, Family, Work,Retirement, and Success

I guess the author finds absolutely no value in having the younger generation help out the older generation. Yeah, if you just want to throw them into the streets, then SS and Medicare are a bad "investment." Fortunately there are a lot of Americans who think human beings are more important than money and realize if we didn't provide SS and Medicare for the elderly, the younger generation would have to anyway.

LMAO this is a bunch of baloney. How about factor in inflation which means our money loses its purchasing power. Example - 20 years ago money bought twice as much as it did today. Come on now this sounds like a piece written by the SSA.

This article is pure BS! It states, "...the AP found that a married couple retiring in 2011 after both spouses earned average income during their lives paid total Social Security taxes of $598,000. They can expect to collect $556,000 in benefits, if the man lives to 82 and the woman lives to 85." I've been working for 51 years garnering Social Security benefits. According to my SS Statement, I've paid in $194,000 in taxes from both my own and my employer. I've earned more than an "average income" in my working years - 20 year military officer, 14 year airline pilot, 10 years as a consultant. People with "average incomes" do not pay in almost $300,000 in SS taxes. Using the SS Administration's actuarial tables for my age and my SS-defined payout, I'll get back some $444,000. That's a far cry from "Social Security Now Takes More Than it Gives". Whoever wrote this nonsensical article ought to be ashamed as should Time Magazine for publishing it. Check your facts!

What a fine pile of misinformation this is. Mary WAterton, be advised that Social Security has a $2.6 trillion surplus. It's not running a deficit. Look into it.

Jason, you couldn't be more Petty. Social Security is paid for through FICA taxes, and is by definition a part of one's own retirement. What's wrong with you?

Befred and Comment-- yes, people are living longer...they also pay in longer and more as wages rise. Because Ss funds are held by US Government bonds, they pay interest which also helps fund the program. Social Security is not an entitlement program because it is self funded...there seems to be a little confusion when you mention welfare. They're not connected.

Social SEcurity has never contributed one dime to the deficit. Ignorance is bliss.

This day has been a looming mathematical certainty for as long as I can remember, yet anytime someone proposed changes to fix the system they were shouted down by those telling the ever-gullible voter that "I will save your Social Security benefits from those who want to take them away!!" No proposal to make it solvent, just hysterical demagogery. Never mind that life expectancy has increased by nearly 20 years or that people are healthier longer in life. Increasing the age when benefits kick in is common sense, yet you'd think those suggesting such a change want to see retirees massacred in the streets.

On, and benefits were not plentiful in 1940. They were first introduced in a meaningful way during World War II as a way of providing additional compensation during a period of wage freezes.

Living longer is one of the main reasons SS is failing. When it was enacted life expectancy was much lower than it is today. The welfare system and it's ridiculously lax rules on EBT cards is the other main contributor because those people don't pay into the system. I have and will continue to pay into SS, but by the time I retire it won't exist and I'll never get a return. I have to laugh at the article because it says one way to get more of a return is to live longer, but that will only hasten it's demise and guarantee even fewer people will ever see any of their money back. It's just a complete failure because of a lack of accountability and PC politics.

Social Security is currently running a deficit, just like everything associated with the Federal Government, and now there is tsunami of a baby boomers getting ready to retire. Generations X, Y, Z will have the money screwed out of with no hop of collecting a penny themselves. Furthermore, it won't do them any good to save money because clearly the Federal Reserve will eventually be forced to monetize the national debt thus wiping out their savings with inflation. A blind monkey with attention deficit disorder could see this coming. The result of decade after decade of federal mismanagement.

@YoElmuh …that surplus you refer to is not an operating surplus, but some 'notes' representing what the treasury OWES Social Security. What backs up those 'notes' you may ask?….Well, those 51% of taxpayers who actually PAY federal-income taxes…..Really, the Social Security Surplus is part of the $17.3 TRILLION of out national DEBT…..Look it up on Socail Security Website….Social Security in not running an operational surplus….

@YoElmuh Wow. You need to stop dealing in fantasy and strawmen. The fact of the matter is that as baby boomers age, that surplus is disappearing and more will be drawn out than is being contributed. Not to mention that that "surplus" is merely made up of IOU's.

When it was enacted the average American didn't live to collect it. The program was designed to prevent elderly who lived beyond the national average from becoming destitute, not to be the primary source of retirement income for 20 years.